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EDITORIAL

Singapore Budget 2018: GST on imported services a big step to broaden tax revenue stream

THE announcement by Finance Minister Heng Swee Keat that Singapore will start taxing the digital economy was not entirely unexpected, given that there was much talk in the weeks leading up to Budget 2018 that some form of e-commerce tax was on the cards.

What did catch some people off-guard, however, was the fact that the government will introduce the e-commerce tax only on imported digital services, and not on goods as well, as was widely anticipated.

As Koh Soo How, a tax leader at PwC Singapore, puts it, the move to apply the prevailing Goods and Services Tax (GST) only to services highlights the "practical difficulties and complexities" that various jurisdictions face in trying to introduce an effective collection mechanism to tax low-value imported goods.

Even if the e-commerce tax covers only imported services for now, the decision to implement this tax is a bold step forward for the government as it seeks to expand its revenue sources. With this tax in place, Singapore can broaden the scope of its existing GST framework and open up a new and sustainable revenue pipeline.

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It is no secret that the e-commerce market in Singapore is expanding at a rapid pace. It is projected to grow to over S$7 billion by 2025, with cross-border transactions expected to comprise more than half, or around 55 per cent.

The GST is set to be imposed on imported digital services like marketing and accounting, movie and music streaming subscriptions and mobile app downloads.

The research firm Gartner said in a study that 59 per cent of Singaporeans have reported purchasing a product or service online, and business-to-consumer apps such as Grab, Uber and Spotify occupy the top 10 spots with the most monthly active users.

Due to kick in from the first day of 2020, the new tax is a way to ensure that both local and overseas services are "accorded the same treatment", and that Singapore's tax system remains "fair and resilient" in a digital economy, said Mr Heng in his Budget speech in Parliament.

With less than two years to go before this tax is introduced, the big challenge now for the authorities is to reach out to the hundreds of overseas online service providers out there who sell their services to Singapore businesses and consumers, and to get them to register with the Inland Revenue Authority of Singapore if they meet the qualifying criteria.

The question on everyone's lips is what sort of impact the tax will have on the consumption of digital services from abroad, and whether it is a significant-enough deterrent to effectively level the playing field for offline companies that have been struggling amid the ever-growing popularity of e-commerce.

The bigger blow to the wallet, if it is ever introduced, will be the taxing of imported physical goods, and whether the government will reduce or even remove the existing S$400 threshold to exempt these items from the GST. That will, in every practical sense, be the real game-changer.

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For more Budget 2018 stories visit bt.sg/budget18

SINGAPORE BUDGET 2018

For more stories, visit bt.sg/budget18
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